If you want to understand why socialism is likely to make a comeback, read the NYT story this morning about how Covidien, a large medical equipment supplier, bought up Newport Medical Instruments, a smaller medical equipment manufacturer, that had a contract with the US govt.beginning in 2010 to build inexpensive ventilators. Newport was making good progress, but apparently that did not please its larger competitor. Covidien bought Newport in order to stop the production of these cheaper ventilators because they would undercut the profitability of its existing ventilator that sold at a much higher price.
Covidien—a publicly traded company with sales of $12 billion that year—already sold traditional ventilators, but that was only a small part of its multifaceted businesses. In 2012 alone, Covidien bought five other medical device companies, in addition to Newport.
Newport executives and government officials working on the ventilator contract said they immediately noticed a change when Covidien took over. Developing inexpensive portable ventilators no longer seemed like a top priority.
Newport applied in June 2012 for clearance from the Food and Drug Administration to market the device, but two former federal officials said Covidien had demanded additional funding and a higher sales price for the ventilators. The government gave the company an additional $1.4 million, a drop in the bucket for a company Covidien’s size.
Government officials and executives at rival ventilator companies said they suspected that Covidien had acquired Newport to prevent it from building a cheaper product that would undermine Covidien’s profits from its existing ventilator business.
Some Newport executives who worked on the project were reassigned to other roles. Others decided to leave the company.
“Up until the time the company sold, I was really happy and excited about the project,” said Hong-Lin Du, Newport’s president at the time of its sale. “Then I was assigned to a different job.”
In 2014, with no ventilators having been delivered to the government, Covidien executives told officials at the biomedical research agency that they wanted to get out of the contract, according to three former federal officials. The executives complained that it was not sufficiently profitable for the company.
The government agreed to cancel the contract.
I'm sure Covidien has some b.s. reason why the project wasn't working out, and I"m sure they will blame the government. And I'm sure the government was faced with whether it wanted to get involved in years of expensive litigation with Covidien that would do little to produce ventilators at a price point that Covidien made clear it didn't want to make.
And I'm sure Wall Street thought it was the right thing for Covidien to do. It would have been capitalistic malpractice for Covidien to do otherwise.
And then we wonder why the cost of healthcare is so ridiculously expensive in this country. Capitalism, insofar as it is driven primarily by the logic of highest returns for the investor, is the cause of higher prices, not a solution for them.
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